It is no secret that the current economic situation is less than perfect. Currently, inflation is the highest it has been in four decades; meanwhile, the Federal Reserve is trying to avoid a deep recession, according to Bloomberg.
In the face of a tightening economic situation, Fed Chairman Jerome Powell has stated that he is prepared to raise interest rates even higher to slow down consumerism. In the meantime, companies are falling short of projected earnings.
Recently, Powell made remarks hinting that he is preparing for the economic downturn and is ready for the economy to move beyond a “neutral” state wherein currency neither gains nor loses considerable value.
Powell’s primary focus is cooling down inflation. He has acknowledged the push for lower inflation will be a painful process that includes rising unemployment, a “softish” landing (meaning a form of recession), and considerable time.
Evidence suggests that Powell’s initial plan of increasing interest rates may be working. According to the U.S. Bureau of Labor Statistics, inflation has dropped slightly from 8.5% in March to 8.3% in April, showing signs that the inflation may be declining.
Powell began demonstrating an authoritative stance toward the economy starting in January. Bloomberg defined his demeanor as hawkish. At the time, it was unknown whether the situation the American economy would be facing was extreme inflation with skyrocketing interest rates or a recession.
However, as prices of every tangible item rise, it is understood that country is in the middle of a historic inflation crisis. Whether or not a recession will follow is still up in the air.
After Powell raised interest rates in May by half a percentage point, the Fed made a statement concerning the necessity of its rate increase.
“The implications for the U.S. economy are highly uncertain,” the statement read. “The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity.”
Powell is attempting to avoid making the same mistake as Bank of England chief Andrew Bailey, who made it seem as if he was “out of options” regarding England’s inflation crisis. According to CNBC, Bailey stated that he does not believe there is anything the Bank of England or anyone else could have done to stave off the crisis.
According to Bloomberg, rate increases in the U.S. can be expected to continue, and people should not anticipate a slowdown any time soon.
Economists from Piper Sandler, Roberto Perli, and Benson Durham said, “A moderation or even an end to quantitative tightening (raising interest rates) would be the next step, actual rate cuts would be the last resort if a recession was seen as inevitable.”